Monday, October 19, 2015

The Economist view on the arguments for and against Brexit

The current issue of The Economist magazine has an very carefully thought though Special Report of the situation of Britain, "The Reluctant European" in the run up to the EU membership referendum.

It includes half a dozen articles looking at different aspects of the choice facing the UK, and it is the first serious attempt I have seen by a newspaper or magazine, rather than campaigners for one side or the other, to assess the case thoroughly and consider all aspects including what the options for British relations with Europe are if the country does vote to leave the EU.

If you are convinced that the supporters of Britain's EU membership have a monopoly of wisdom you will probably hate some aspects of the Economist's article, and if you are a convinced supporter of the "Leave" campaign you will probably hate the rest. But if you have an open mind you probably ought to read it. I suspect both campaigns will find sections of this report that they will quote extensively and others they will have to try to counter.

NB - I am publicising this as a contribution to debate, not because I have necessarily arrived at all the same conclusions.

The online version on "The Economist" website gives you the option to scroll through the articles in the special report in sequence: It begins with an article by John Peet with the same name as the special report as a whole, "The Reluctant European" and has a concluding article about the fact that most of Britain's friends would prefer the country to remain part of the EU which you can read here.

A inferred above I do not agree with everything in this report and it is more negative in tone than I would prefer, although at the end it stresses the need for both sides to express their views in a positive manner.

However, this is not a "Project Fear" article because the authors have clearly tried hard to give both sides of each aspect of the case and to avoid the worst scaremongering and exaggerations of either side. Referring to the costs and benefits of Brexit they write:

"Different people have done the sums in a variety of ways and the results have often been remarkable, not to say incredible. Some advocates of staying in have claimed that 3m jobs would be lost if Britain left, and some who want it to leave have talked of a potential 25% gain in GDP per person."

The inference is that neither of these positions is credible, and I agree.

It is an inadequate argument for "Remain" supporters to simply cite the (enormous) amount of business and jobs dependent on Britain's trade with Europe as if Brexit would automatically mean that all this must be lost: whether it is put at risk depends very much on what relationship Britain then has with countries which stay in the EU. However, some exit options - relying purely on WTO rules for access to the Single Market, for instance - certainly would carry a serious risk of damaging our export trade with Europe.

The Economist argues that the issue on which advocates of Brexit have the strongest case concerns the future development of the Euro, and particularly the danger that Eurozone countries, who together have a qualified majority vote enabling them to outvote the rest of the EU, might push through measures which are not in the interests of non-Euro members. In particular

"Britain, the biggest out, is home to much the largest financial centre in the EU, which also handles the lion’s share of wholesale cross-border euro business. Within the euro zone this is widely seen as anomalous. The European Central Bank tried at one point to insist that clearing houses for euro securities trading should be based in the euro zone, although in March the British government won a case against this in the European Court of Justice. The British government cites other examples of interference, including a successful campaign by the European Parliament to cap bankers’ bonuses and a so far unsuccessful attempt to impose a financial-transfer tax on transactions. And in August the euro zone, acting as a qualified majority, overturned a European Council ruling to draw on an EU-wide bail-out fund, the European Financial Stability Mechanism, to lend money to Greece without telling non-euro countries."
"Given such examples, Britain is understandably worried about possible threats to the City of London. As Charles Grant of the Centre for European Reform puts it, “other EU countries that know little about finance—or that seek to favour their own financial centres—could vote for rules that harm [the City’s] competitiveness.”

Unlike the vast majority of articles on the subject other than those by campaigners to leave, the Economist article actually mentions Article 50 of the Lisbon treaty, the most likely path to exit.

Having looked at all the options, The Economist points out the biggest single problem with the case for Brexit - the fact that although most of the things the "Leave" campaign offer might individually be attainable depending on which alternative option is selected, it is unlikely that we could obtain all of them. The magazine writes

"To voters who want less immigration, the Eurosceptics say: you can have it only if you leave the EU. To small businesses fed up with too much red tape, their message is: so long as you do not trade with the rest of the EU, you can tear it all up. To people who worry about being shackled to a continent still suffering from the aftermath of the euro crisis, they offer a nimble Britain that can shift trade to faster-growing markets in Asia and the Americas. And to believers in democracy at national level, they promise that once Britain has escaped the clutches of the European Commission and the European Court of Justice, its lawmaking will return to where it belongs, the Westminster parliament. They also throw in the need to escape from the pernicious European Court of Human Rights, even though it has nothing to do with the EU."

"It sounds too good to be true, and it is, for these arguments are full of inconsistencies."

The Economist challenges head on an argument often put by advocates of British exit from the EU, that despite not being in the EU the rules still give Norway and other EEA members some influence over what those rules are. When he was an academic, Norway's present attorney general led a study of the relationship between the country and the EU which reported "serious democratic concerns because Norway was forced to implement laws that it had no say in making."

The magazine quotes Vidar Helgesen, Norway’s Europe minister, as saying that because his country is not represented in the Brussels institutions, it often finds it difficult even to discover what laws are being proposed and adopted. They say that the Norwegian Prime Minister and Attorney general have advised Britain "to steer clear of the Norwegian model at all costs."

The written article tried very hard to give both sides of the story. The Economist has also produced a short video summary which makes some fair points but with rather less effort to give both sides. Basically this is a 160-second distillation of the case for "Remain." Don't watch if you are a "Leave" supporter and easily annoyed.


Jim said...

You are asking an Economics question to attempt to gain an insight to a question that is not an Economics question. Hmmm.

had the question been "should the UK leave the Single Market?" then ok, but that is not what the question is. The question is Should the UK leave the Political European Union or Remain a member?

so in short, this post does not make much sense Chris.

Jim said...

also if you want to see the answer from Norway, there is no objection

Chris Whiteside said...

Of course it is an economics question. It is also a political question.

What is now called the European union was, at the time Britain joined it, called the European Economic Community. It dropped the "Economic" in recognition that it also had political aspects, not because it ever dropped the economic ones.

If you want to argue for a particular decision on political grounds that is entirely legitimate because the question does indeed have political aspects.

However, given that it also has extremely important economic ones, if you want to criticise someone else the right to come to their view on economic grounds, I think that's as unreasonable as it would be if I were to criticise you for coming to a view on political grounds.

Chris Whiteside said...

On the Norway point, read the article and you will see that the Economist is not disputing that the majority of Norwegians do not want to join the EU - I believe the latest polls show 70% of them against it. It is not surprising if such a large number of the electorate take that view that some of their politicians share it.

The point the article made is NOT that the Norwegians are keen to join, it is that people in their government including the PM and attorney general are not at all happy with the way their current alternative arrangement is working and advised Britain against following it.

E.g. this is an argument against the EEA membership option, not an argument against Brexit per se.

Chris Whiteside said...

And with all due respect, you have misquoted the question. The Electoral commission has recommended, and I understand that the government has accepted, that the question should be amended to:

“Should the United Kingdom remain a member of the European Union or leave the European Union?”

The responses would be: “Remain a member of the European Union” or: “Leave the European Union”.

The word "political" is not in there, Jim. People can make their own minds up about how they will assess the arguments.

Jim said...

That is my point though, the EEA option is the best option we have available. Whilst it is not perfect, it is off the shelf, it is available and will act as a very good stepping stone, meaning we keep all the trade in place, we just leave the EU.

Of course I comment a lot on this subject, more than I should to be honest (and I can see that) Its just this issue (the UK leaving the EU) is the one thing that interested me in politics at all. Its the reason I take such an interest, and is pretty much my primary driver.